Firm becomes major player in Western Canada markets

Simone Cohen says she likes the service at Safeway and the produce department is better than at Sobeys. (PHIL HOSSACK / WINNIPEG FREE PRESS) Photo Store

Attention, supermarket shoppers

Winnipeggers who spoke with the Winnipeg Free Press outside the Grant Park Safeway were generally unfazed by the sale of the Western Canadian grocer to Sobeys. Most shoppers said they shop at various grocery stores and aren't worried about the concentration of ownership in the hands of two large retailers. But most also hope Sobeys would continue to maintain the Safeway brand and its exclusive products such as Lucerne.

Kathy Nicolaou, staffer at Magicuts

Q: Do you always shop at Safeway?

A: "I usually shop here. I work right next door. This is on my way home and I just find it very convenient. It depends on who has the best bargains."

Q: How worried are you that there will be fewer choices in grocery stores?

A: "I don't think so, really. Target is going to have groceries and Shopper's has groceries. I went to Walmart and there was a big difference. It was a lot cheaper, by two or three dollars."

Simone Cohen, stay-at-home mother

Q: What do you think about Safeway being sold to Sobeys?

A: "I was just thinking I liked Safeway better! I like the produce department better. I've gotten really used to the service here. It might just be because I've been coming here forever."

Elaine Grosney, works in insurance

Q: Do you always shop at this Safeway?

A: "I've been coming here for 30-odd years. I'm faithful. What can I tell you?"

Q: Are you worried about the sale of Safeway to Sobeys?

A: "Not really. I think every company at one time or another gets bought out by another company. It's very competitive. (I) hope they don't close this store. It's a landmark. It's been here for eons and eons."

TORONTO -- Supermarket chain Sobeys Inc. says its $5.8-billion acquisition of Safeway's Canadian assets will give it a foothold in sought-after retail markets in Western Canada.

"After the acquisition, Sobeys will be a leading grocer in Western Canada and the largest grocer in Alberta, an attractive, high-growth market," president and chief executive Paul Sobey said Wednesday.

"This acquisition represents a unique and highly strategic opportunity for Sobeys to leverage its existing asset base, effectively creating a new platform for growth."

Empire Co. Ltd. (TSX:EMP.A), the Nova Scotia-based parent of the Sobeys chain, said the cash deal will give it $1.8 billion of real estate.

The transaction to buy Canada Safeway Ltd., which has 213 stores, will be completed through Empire's wholly owned Sobeys Inc. subsidiary. Included in the transaction are 199 in-store pharmacies and 62 gas stations on the Safeway properties.

Empire Co. will also own 10 liquor stores, four distribution centres and 12 manufacturing facilities as part of the deal.

Empire said it expects to find cost synergies of about $200 million over three years by integrating the distribution, information technology and procurement divisions of both grocers.

The company also said it will cut its administrative and marketing costs by combining management teams, but would not comment on whether layoffs are expected.

"We have a need for great, talented people," said Sobey. "There's a great cultural fit in regards to the employee basis between the two organizations."

Sobeys owns or franchises more than 1,300 stores across Canada under several banners that include Sobeys, IGA, Foodland, FreshCo, and Thrifty Foods.

The company noted the acquisition positions it to compete more effectively within the changing and increasingly competitive grocery retail landscape in Canada.

In addition to traditional rivals such as Loblaw (TSX:L) and Metro Inc.(TSX:MRU), major U.S. retail players such as Walmart (NYSE:WMT) and Target (NYSE:TGT) have been making inroads in Canada with a broad selection of food items in their stores.

Safeway Inc. chief executive Robert Edwards told analysts in a conference call the offer to buy its Canadian operations came directly from Empire Co.

"An auction process was not run and this was an unsolicited offer," he said.

"We believe that this transaction maximized the value of our Canadian assets."

In its last financial year, Safeway delivered $6.7 billion in sales. The California company has some 1,400 stories in the U.S.

Safeway said the proceeds from the sale will go to pay down debt and buy back stock, and may also be used to invest in "growth opportunities."

However, an analyst at Gimme Credit labelled the transaction credit-neutral for Safeway, noting the store's Canadian operations have earnings margins nearly twice as high as the overall company.

About 60 per cent of the properties are in Vancouver, Calgary, Edmonton and Winnipeg.

Empire's spun out Crombie real estate investment trust will have the first opportunity to buy any of the $1 billion in real estate assets the company plans to sell. Empire expects the transaction to close in the fourth-quarter and immediately add to adjusted net earnings per share.

Wayne Hanley, national president of UFCW Canada, which represents thousands of Canada Safeway and Sobeys workers, said the union has asked for talks with Sobeys to discuss the takeover.

"While the purchase of Canada Safeway by Sobeys is a significant change in the Canadian food retail landscape, what has not changed are the collective agreements in place with both employers," Hanley said.

"We do expect Sobeys to live up to the labour commitments in place at Canada Safeway and have no reason to doubt they will."

Stock in Empire, which made the announcement after markets closed, was down 97 cents, or 1.41 per cent, at $67.61 Wednesday on the Toronto Stock Exchange.

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